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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A Bengaluru fintech startup holds a large amount of customer data. To address the possibility of a data breach, it buys a cyber liability insurance policy with a deductible, while also deciding to absorb losses up to the deductible from its own funds. Which statement best describes the strategy mix?

The strategy is a mix of risk transfer and risk retention. Losses above the deductible are shifted to the insurer through cyber liability cover, while losses up to the deductible are borne by the startup itself. The cyber exposure is not eliminated, so it is not avoidance or diversification.

  1. APure risk avoidance, since the policy removes the cyber exposure entirely
  2. BRisk transfer for losses above the deductible and risk retention for losses within the deductibleCorrect
  3. CRisk transfer for all losses, since the deductible is part of the insurance contract
  4. DRisk diversification for losses above the deductible and risk avoidance below it

Explanation

Insurance shifts the financial impact of large losses to the insurer, which is transfer. The deductible is the portion the startup bears itself, which is retention. The exposure still exists, so it is not avoidance, and no spreading across independent activities occurs, so it is not diversification.

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